In light of recent market volatility, remember that your retirement plan is intended for long-term investment. Attempts to time the market are rarely successful. One way to manage risk over time is to ensure you have a diversified portfolio that is rebalanced through up-and-down markets. Keep your individual needs, goals and time horizon in mind and consult with your financial adviser if needed. It is important to note diversification and rebalancing do not ensure a profit and do not protect against loss in declining markets.
I was talking to an acquaintance of mine who was telling me that her mother and her father had no retirement savings because when the market crashed after the terror attacks on September 11th, 2001, her parents got scared and emptied their 401K to try and save what money they had left.
It was a stupid move made on impulse and emotions. If they would have left their money in, and waited for the market to go back up, they would probably have hundreds of thousands, if not a million dollars in their retirement accounts today!
Via Dave Ramsey's blog:
Today, it’s the U.K.’s vote to leave the European Union. Last year, it was China’s stock market crash. Tomorrow, it will be some other global crisis.
But no matter how scary the headlines are, our stance stays the same: The only people who get hurt on a roller coaster are those who jump off.
Don’t forget you’re investing with a long-term outlook, and that means sticking with your investing plan whether stocks are up or down—or both in the same day!I can totally understand the fear of losing money, and not being able to see the long term for some folks. The trick, in my opinion, is to not think about how much money you are going to lose when stocks go down, but rather, how much you are going to make when you buy when stocks are in effect "on sale"!
Warren Buffet said it best...
In short, what he means is that when people are greedy and stocks are going up, then it's best to stand back and wait for stocks to fall. When stocks do fall, and people are selling out of fear, that is the time to swoop in and buy at a discount. Buy low, and sell high is the ultimate goal right? The trick is to get control of your emotions, and think of it like you're buying at a discount.
The same goes with your retirement accounts. The dip may cause a short term reduction in your retirement account, but as you add more money in while the market is cheaper, you will gain more down the road.
I know it may seem counter intuitive to do the opposite of what the herd is doing, but trust me, in the long run you will come out on top!
Going back to me logging into my retirement account. Because of the diversification strategy I set up, even though the Dow and S&P dropped so much, in total I was only down by about $100 since the beginning of February, but I'm still up by about 14% since the end of December and 18% since this time last year!. Obviously I didn't sell in a panic. On the contrary, I'm looking forward to buying more stocks at discount prices!
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